McKinsey Study: Gig-Economy Workforce Is Bigger Than Official Data Shows in U.S., Europe

The number of independent workers is being undercounted by governments in the U.S. and Europe—and that is contributing to glaring gaps in labor market policy, according to a large study released this morning by the McKinsey Global Institute.

The study found that 20-30% of the labor force in both the U.S. and the EU-15 is now made up of independent workers who are self-employed or do temporary work. The EU-15 is made up of Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden, and the U.K.

McKinsey surveyed more than 8,000 respondents for the study. The respondents were based in six countries: The U.S., France, Germany, Spain, Sweden and the U.K.

Government estimates of the number of independent workers are too low, according to the research, because they "significantly undercount those who engage in independent work to supplement their income."

How big are the gaps? While the percentage of independent workers in the U.S. is 27% by McKinsey's estimate, it was 22% according to government data and other published surveys the institute analyzed. McKinsey estimates that the total number of of independent workers in the U.S. is now 54-68 million. There were 159.9 million workers in the civilian labor force in September.

In Europe, the gulf between official data and McKinsey's was also large. For instance, in Spain, McKinseys's analysis of official data showed the percentage of independent earners to be 15% of the population, compared to 25% in McKinseys' survey. And in the U.K., where the percentage of independent workers is 14% according to official data, it was 26% according to McKinsey's survey.

Taxi drivers clash with the police during a go slow action in Lisbon on October 10, 2016 to protest against the legalization of car booking chauffeured services Uber and Cabify, accused of 'unfair competition'. Access to the Lisbon airport was temporarily blocked by the passage of the convoy on the way to the Portuguese Assembly, where protesters would seek negotiations with the Socialist government. (Photo credit: PATRICIA DE MELO MOREIRA/AFP/Getty Images)

McKinsey's findings are important because current labor laws, built on the Industrial Era assumption that most people have traditional jobs, do not take into account the financial situation of taxpayers who earn money in freelance businesses, whether these are full-time or done on the side. Many independent workers lack access to “income security protections,” such as unemployment insurance, workers compensation and disability insurance, that traditional workers have, the report notes.

“A lot of our labor market policies have been developed with the idea of a traditional 9-5 job in mind,” says Susan Lund, partner at the McKinsey Global Institute, the business and economics research arm of the consultancy McKinsey & Co. “That no longer applies. There is a lot of catch-up we need to do.”

There is discussion in the U.S. -- where benefits such as retirement plans and health insurance have traditionally come from employers--of creating portable benefits through pools of independent workers who create their own marketplaces, the report notes. However, many such ideas are in the early stages, and discussions will have to address how someone qualifies for such benefits and who will pay for them, the authors point out.

McKinsey’s research is the latest large-scale study to underline the growing size of the freelance economy. Though recent estimates of the number of independent workers have varied with the methodology used, they generally peg the percentage of free agents in the U.S. workforce at 30% or more. Last week, for instance, the Freelancers Union and Upwork released research showing that 35% of the U.S. labor force now does freelance work, either part-time or full-time.

Differences in the estimates usually reflect the many ways independent workers are being defined. By McKinsey's definition, independent workers must have a high degree of autonomy. They get paid by task, assignment or sales. And if they have contracts, they have a short-term assignments with customers that last less than 12 months.

Unlike some other recent studies, McKinsey's definition excludes (1) "fissured workers," who work for subcontractors and vendors to which corporations outsource functions such as janitorial services and security, (2) self-employed people with many employees, and (3) "permatemps" on long-term or continuously renewed contracts, a trend in Europe.

McKinsey's research was part of a series conducted to help business and policy leaders understand the forces transforming the global economy and prepare for them.

One reason McKinsey did the study was how polarized opinions are on gig work, particularly in Europe, according to Lund.

“Some people say you get to be your own boss and don’t have to be a wage slave,” says Lund. “Others are saying it is terrible people are forced into this.”